Fitch Ratings has affirmed
Fitch has also affirmed the National Short-Term Rating at 'F1(twn)'.
Key Rating Drivers
Driven by Intrinsic Profile: TSB's National Long-Term Rating reflects its low default risk relative to other domestic issuers in
Stable Operating Environment: The operating environment score of 'a' with stable outlook considers
Relatively Small Franchise: TSB has a small franchise with a limited market position. The bank's business model is less diversified than those of larger local peers, with 85% of its total revenue derived from net interest income. TSB's deposit and loan market shares are around 0.1% each at end-2023. It has a small branch network that is focused on the affluent
Steady Risk Profile: The bank continues to focus on property-related lending backed by real estate in the
Moderate Asset-Quality Risk: We expect TSB's impaired-loan ratio to be flattish in 2024-2025 as the bank has only a small exposure to pandemic-related relief lending. TSB also maintains consistent collateral coverage to mitigate its asset quality risks. That said, its high borrower and sector concentration constrains our assessment of its asset quality despite its much low impaired-loan ratio compared to the sector average.
Profitability Weaker than Peers: We expect TSB's profitability to remain weaker than that of peers because of its small scale and high operating-cost leverage. The bank's operating profit/risk-weighted asset (OP/RWA) ratio dropped to 0.3% in 2023 from 0.4% in 2022 due to lower net interest income despite a net reversal of loan impairment charges.
Declining Capital Buffer: We expect TSB's capital buffer to decline, given its high growth relative to its limited internal capital generation. This constrains our assessment of its capitalisation. The bank's common equity Tier 1 (CET1) ratio slightly declined to 10% by end-2023, from 10.2% at end-2022 mainly due to higher growth in property-related loans, especially acquisition, development and construction loans, which have high regulatory risk weights at 150%-200%.
Small Deposit Franchise: Our assessment of TSB's funding and liquidity profile is constrained by its small deposit franchise, notwithstanding ample system liquidity in
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Negative rating action may arise should the bank pursue rapid growth, leading to a deterioration in key financial metrics for a sustained period, such as its CET1 ratio falling below 8.0% with no credible plan to return to existing levels. Any negative rating action would also consider whether TSB's overall credit profile has weakened relative to the national rating universe.
The National Short-Term Rating could be downgraded if the bank's National Long-Term Rating is downgraded to 'BBB+(twn)' or below.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Changes in Fitch's perception of TSB's credit profile relative to the national rating universe could affect its National Ratings.
Rating upside could come from a meaningful enhancement of the bank's franchise and business scope, resulting in a sustained improvement in profitability. This may be evident from its OP/RWA ratio rising towards 0.75% (2020-2023 average: 0.4%) while its CET1 ratio is maintained at above 10% (2023: 10.0%).
The National Short-Term Rating could be upgraded if the bank's National Long-Term Rating is upgraded to 'AA-(twn)' or above.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
RATING ACTIONS
Entity / Debt
Rating
Prior
Natl LT
A-(twn)
Affirmed
A-(twn)
Natl ST
F1(twn)
Affirmed
F1(twn)
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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